FedUpUSA

Archive for March 1st, 2011

It’s amazing what conclusions people will draw from unrelated events.  This article in the Washington Times for instance.  Of course, the Times isn’t the only place where people are attempting to establish a cause and effect through unrelated events and failing to reach an accurate conclusion from circumstantial evidence.  This is probably why our court system disallows circumstantial evidence, but that’s just an educated guess on my part. 

Glenn Beck* is also doing this with regards to the financial portion of his programs.  He too, has failed to deduce that the cause of our financial meltdown has absolutely no correlation whatsoever to those who are currently exploiting it.

None of what is written in the Times article would have even been remotely possible (assuming there are any bits of truth to this being ‘planned’) unless all the referenced Wall Street firms had already been insolvent – AND THEY WERE!  Anyone who can read a financial earnings report can conclude this merely by examining the data.  Further, anyone can currently see the former balance sheet of Bear Stearns, now happily festering on the Federal Reserve’s books, just awaiting its further taxpayer bailout.

The collapse of Wall Street was not organized by any foreign terrorists – it was created by the Wall Street firms themselves who thought they could collude to drive the prices of mortgage backed securities up in perpetuity. As long as property values were going up, these investment vehicles sold like hot cakes. When normal people could no longer afford homes, the Wall Street banks tried forcing lenders to push ‘creative’ ( a/k/a/ fraudulent) loan products to get people into homes they couldn’t afford – the more risky the loan the bigger the profit for Wall Street. That ended when everyone discovered, much to their disbelief and dismay, that home values were not a perpetual motion machine.  The result was that the portfolios of all these Wall Street firms imploded….only to be rescued by the taxpayers at the point of Hank Paulson’s gun (a/k/a ‘bazooka’).

Now, please tell me how foreign terrorists orchestrated and dictated the actions of almost every single Wall Street firm in our country (to say nothing of the investment firms world-wide that did the same thing) over the past 10 years. If you can answer that, you’ll discover that the collapse was coming regardless of who might now want to exploit it. All of these firms were going to collapse through no fault of anyone’s but their own. They were and still are insolvent and that includes the ones still operating today through taxpayer support. Without the Federal Reserve’s QE policy and without taxpayer exploitation every Wall Street firm would collapse tomorrow. It would have nothing to do with foreign terrorists, George Soros or anyone else.

It is supposition like this article and some of the things from which Glenn Beck is drawing correlations that do not prove effect, which are protecting the true guilty parties: The investment firms on Wall Street and the legislators those firms purchased with their massive profits over the past decade.

Unfortunately it is ‘conspiracy theories’ like these that obsfucate the real truth. The real truth is MUCH scarier than the conspiracy theory in this particular case. You literally have hundreds of criminals running free right now and they are doing exactly what they’ve done for the past decade, just in new areas: they’re robbing us all blind using commodities in which they ‘invest’ with YOUR taxpayer dollars through the Federal Reserve’s QE policy. That same QE and ZIRP policy is also responsible for the unrest around the globe by literally starving people world-wide.

To make this stop the real criminals need to be prosecuted. That is the ONLY answer. And the criminals are not ‘foreign terrorists’ or George Soros; they all reside on Wall Street and in Washington DC.  Understand that George Soros is not an omnicient god, he is but an opportunist who saw the stupidity being allowed to happen on Wall Street and he is now taking advantage of it for his own gains. While he may be a socialist, he makes his money exploiting the bastardized system of ‘capitalism’ we have here – that is: laws don’t apply to those with money – only to the ‘little guys’.  This is not capitalism.  We have not had true capitalism in decades.

Real capitalism is ‘equality under the law’ – NOT ‘some are more equal than others’ and the latter is what our system has become. At this juncture, anyone advocating for Wall Street is supporting fascism.

* Disclosure: I’m actually a Glenn Beck fan and greatly appreciate his efforts.  Some of what he discusses that appear to be ‘conspiracy theories’ truly are valid presentation of fact.  However, when it comes to the economic crisis (from which we are NOT recovering and is ongoing), he is missing the boat trying to tie things together in cause and effect that are just not at all related.

Today the SEC announced insider trading charges against Goldman Sachs and Proctor & Gamble. 

Do I see a cop?

Maybe….although we’ll see if the criminals actually get prosecuted under criminal law or if they get off with a little fine. 

This is a prefect illustration of how some of our biggest corporations work with those on Wall Street to circumvent laws that should prevent this sort of behavior.  The problem is, they don’t.  This is because the penalties for breaking these laws, at least as applied to our most prestigious corporations and investment banks, are merely fines, despite the fact that these actions are crimnal in nature and should be penalized with hardcore jail time.  If the penalties for being caught robbing a local store were merely a fine, wouldn’t you turn around and do the same thing the next day?  How fabulous would YOUR checking account appear if you could disregard mark-to-market accounting?  I don’t know about you, but I’d have a swimming pool and at least two Corvettes.  What kind of home would you be living in if you were able to have inside information regarding which way a stock would go, three days before it happened?  And you could have all this without fear of going to jail?  Just pay a little fine and be on your way.  This is precisely what happens to those on Wall Street and those running our big corporations anytime they are caught in an illegal act.

This circumvention of laws that are applied to the rest of us is precisely why all of We The People’s money is being stolen and systematically funnelled to the top 1% of our country. It is NOT that capitalism is evil, it is that some people have very successfully managed to circumvent equal protection under the law by paying our regulatory agencies and our legislators to look the other way.  Big profits by Wall Street and our large corporations go directly to electing those that will vote in favor of an agenda that benefits Wall Street and the large corporations. 

Anyone who thinks protecting Wall Street is protecting capitalism is delusional. You’re advocating for fascism – which is exactly what our system has become – ALREADY. What we need to do to RESTORE capitalism is for our existing laws to be enforced, applicable to EVERYONE. We don’t need new ones. We don’t need a new system: WE NEED TO ENFORCE EXISTING LAWS WITH THEIR APPROPRIATE PENALTIES.  Then perhaps we can talk about finally rescuing this country and stopping this insanity.

The end of QE2 is still several months away and yet quite a few top Federal Reserve officials are already hinting that more quantitative easing may be necessary.  Apparently the U.S. economy is not moving forward as rapidly as they would like.  So it looks like “QE3″ could be on the way.  But did anyone out there actually believe that quantitative easing would come to a complete stop in June?  Whether they call it “QE3″ or something else entirely, the reality of the matter is that we have now come to a time when the Federal Reserve is going to be continually purchasing a significant percentage of all new U.S. government debt.  This is essentially a gigantic Ponzi scheme, but sadly there is just not enough money in the rest of the world to be able to continue to feed the U.S. government’s voracious appetite for debt.  Right now Ben Bernanke and his cohorts are trying to break the news to us gently, but anyone with half a brain can see what is happening.  The only way for the game to keep going is for the Federal Reserve to print lots more money, and that is going to be incredibly bad for the U.S. economy in the long run.

The other day James Bullard, President of the Federal Reserve Bank of St. Louis, made national headlines when he declared that Fed officials should “never say never” when it comes to QE3 and more quantitative easing.  But the truth is that other Fed officials have been dropping public hints about the “need” for QE3 for several weeks now.  Just consider the following quotes from top Federal Reserve officials….

Federal Reserve Chairman Ben Bernanke in response to a question about the potential for QE3 at the National Press Club….

“In the end, we’ll just ask the same questions. Where’s the economy going, and what do various inflation indicator look like? We’ll ask those questions. If unemployment is still too low, then we may continue. If we’re moving towards full employment, then we won’t need to stimulate more.”

“The economy can be allowed to grow rapidly for quite some time before there is a real risk that shrinking slack will result in a rise in underlying inflation.”

James Bullard, President of the Federal Reserve Bank of St Louis during a recent speech at the Bowling Green Area Chamber of Commerce….

“The natural debate now is whether to complete the program, or to taper off to a somewhat lower level of asset purchases. Quantitative easing has been an effective tool, even while the policy rate is near zero. The economic outlook has improved since the program was announced.”

Charles Evans, President of the Federal Reserve Bank of Chicago during a recent interview with The Financial Times….

“The message that comes out of what I think of as high-quality research on this subject is that policy ought to remain accommodative for really quite a while, even a while after conditions start to improve.”

So how in the world did things get to the point where the Federal Reserve feels forced to recklessly print gigantic piles of money?

Well, it didn’t happen overnight.  Back during the 1980s and 1990s there were many people that desperately tried to warn about what would happen if U.S. government debt was not brought under control.

Unfortunately, our politicians did not heed those warnings.

Today, the U.S. national debt has reached a grand total of $14,137,541,098,872.71.  It is 14 times larger than it was just 30 years ago.  It is the largest single debt in the history of the world.

So why don’t our politicians just balance the budget now so that we don’t keep having to borrow so much money?

Well, there are some huge problems.  First of all, when you combine entitlement programs such as Social Security and Medicare with interest on the national debt, it comes to approximately 64 percent of all federal government spending.

But that is not the bad news.

In the years ahead, entitlement spending and interest on the national debt are both projected to absolutely explode.

We are rapidly approaching a time when spending on entitlement programs and interest on the national debt will be significantly greater than all of the revenue that the federal government brings in each year.  All federal revenues will be spoken for even before a single penny is spent on defense, education, running the government or anything else.

Either entitlement programs are going to have to be seriously reformed or the U.S. government is going to have to come up with a massive amount of extra money from somewhere or the U.S. government is going to have to borrow increasingly large piles of money from someone.

Unfortunately, there are no easy solutions and most of our politicians are scared to death to touch entitlement programs because it will mean that they will lose votes.

But our entitlement programs were never meant to be as massive as they are today.  Back in 1965, only one out of every 50 Americans was on Medicaid.  Today, one out of every 6 American is on Medicaid.

Obviously something has to be done, because the debt that we are passing on to future generations is absolutely criminal.

For example, every single child born in America today inherits $45,000 in U.S. government debt.

Isn’t that lovely?

Of course our liberal friends believe that the answer is just to raise taxes.

Oh really?

The truth is that our taxation system is deeply broken.

Small business owners and middle class Americans are being taxed into oblivion while those at the top of the food chain often pay no federal taxes whatsoever.

For example, did you know that Citigroup did not pay a dime of federal taxes in the third quarter?  Meanwhile, their executives continue to bring in bonus packages worth millions.

Did you know that even though Boeing receives billions in federal subsidies every year and even though it has a bunch of juicy government contracts it did not pay a single penny in federal corporate income taxes from 2008 to 2010?

Did you know that while Exxon-Mobil did pay $15 billion in taxes in 2009, not a single penny went to the U.S. government?  Meanwhile, their CEO brought in over 29 million dollars in total compensation that year.

You can find a lot more examples of this phenomenon right here.

Those at the top of the food chain are experts at avoiding federal taxes.  So liberals can raise rates all they want but it won’t do much good.

As I have written about previously, the truth is that approximately a third of all the wealth in the world is now held in “offshore” banks.  The ultra-wealthy and the monolithic predator corporations that dominate the global economy don’t mess around when it comes to paying taxes.  They don’t care if they aren’t paying their “fair share”.  They simply know how to play the game and they laugh at all the rest of us.

Our entire system is broken beyond repair and needs to be reconstructed from the ground up.

But of course that simply is not going to happen.

So what can be done?

Not a whole heck of a lot.

The truth is that the U.S. economy is on the verge of a major collapse.

Marc Faber, the author of the Gloom, Boom and Doom report recently gave a speech in which he declared that the U.S. financial system is in such disastrous shape that only a “reboot” will be able to save it….

I think we are all doomed. I think what will happen is that we are in the midst of a kind of a crack-up boom that is not sustainable, that eventually the economy will deteriorate, that there will be more money-printing, and then you have inflation, and a poor economy, an extreme form of stagflation, and, eventually, in that situation, countries go to war, and, as a whole, derivatives, the market, and everything will collapse, and like a computer when it crashes, you will have to reboot it.

But can we just “reboot” the system and expect things to go back to normal?

Of course not.

The truth is that when the rest of the world completely loses faith in the U.S. dollar and in U.S. Treasuries the dominoes are going to start to fall.  Eventually we are going to see a financial panic that is going to make 2008 look like a Sunday picnic.  Our economic system will massively implode as all of the gigantic mountains of debt and paper money collapse like a house of cards.

Right now the Federal Reserve is desperately trying to hold the system together by “papering over” all of the mistakes.  But in the end it is not going to work.  In fact, what we are witnessing now are the very early stages of hyperinflation.  A lot of other nations in the past have thought that they could just print their way out of trouble, but many of those “experiments” ended in total disaster.

Marc Faber is certainly right about one thing – all of this money printing is going to give us substantial inflation to go along with the high unemployment that we already have.  This is called “stagflation” and anyone that remembers the 1970s knows that it is not a lot of fun.

But the Federal Reserve seems absolutely determined to print more money.  Fed officials are doing the same thing now that they did right before QE2.  They are dropping hints about QE3 and they are trying to break it to us gently.

Well, it is about time that someone told the American people the truth.  All of this money printing is going to end in disaster and so you had better get prepared.

The Economic Collapse

Seriously, there’s a difference between being rather foolish and outright bullcrap.

The American banking system has spread systemic risk all across the economy with laser point precision but very few are even aware of this grim reality.  It would seem that only those who understand the system from the cavernous inside and have little to lose can actually speak out against the system as they see it.  Bernard Madoff recently called the United States Government a Ponzi scheme.  As it turns out many of the biggest banks in this country knew something was suspect with Madoff’s incredible gains but wanted a piece of the action instead of exercising a fiduciary responsibility.  Madoff is guilty of swindling investors, many who were greedy and didn’t even bother to ask how Madoff was able to generate 20 percent year over year returns.  Wall Street and the investment banks however are guilty of a larger crime by defrauding the wealth of working and middle class Americans.  The fact that three years into the crisis and no serious reform has taken place causes us to pause in baffling amazement at the ability to ignore the obvious financial errors.  Our banking system is being held up by blind faith while the real wealth of the country is siphoned off to the top.

Look up and you can see where the income went

Source:  CBO

If we look at a period of 26 years from 1979 to 2005 you can see where the real income gains landed.  The bottom 60 percent of Americans saw tiny gains in this quarter of a century period.  The true income gains went to the top one percent just like a helium balloon floating up to the sky.  What do we have to show for this period?  We get the deepest crisis since the Great Depression and an unemployment and underemployment rate of 17 percent topped off with the biggest nationwide housing bubble ever to grace this landscape.  The American public at large was swindled for many of these years.  What glossed over all these problems was the large amount of debt that was mistaken for actual wealth by most working class and middle class Americans.  Since income gains were mediocre at best, Americans in order to maintain a middle class lifestyle went deeply into debt instead of examining why they needed so much debt in order to maintain a middle class life:

Americans fell into a debt trap and mortgaged their entire future while little by little the productivity gains and real wealth were being dragged up to the top.  As Americans became more and more comfortable with debt, many turned a blind eye to the incredible leverage used by Wall Street banks to speculate in archaic investment vehicles that served no other purpose but to make a few incredibly rich at the expense of the public.

“These financial instruments did not advance our economy or society but used surgical precision to cut out real wealth and transplant it in the hands of the few.”

That is the massive problem of our current banking structure.  Gains are privatized in the hands of the few and losses are socialized to the masses.  Banks don’t even bother hiding this shell game since they have both political parties bought.  The Federal Reserve openly shows the toxic junk loans they now own thanks to American taxpayers with no remorse.  It is public knowledge and the Fed seems to operate like the FDIC in the notion that if you lie enough and pretend all is fine, that eventually the public will fall in line.  This seems to work until it doesn’t like we saw in 2008.

The government is going deeper and deeper into debt and we are resembling the debt incurred during WWII:

Source:  Dshort.com

The above chart is incredibly important to understand.  The big Federal debt incurred during WWII was largely visible by our involvement in the war.  Today we are inching closer to this level and there is nothing remotely close to what was going on during WWII.  The chart also doesn’t highlight the massive debt liabilities we have coming due which weren’t a problem in the 1940s when the Federal debt as a percent of GDP was above 100 percent.  We have trying years ahead.  Most of the recent debt was brought on by the massive bailouts of the Wall Street banking system.  How is this sustainable?  Add into the mix the millions of baby boomers flooding into retirement and you have to wonder where things go from here.

The number one asset of Americans going back down

Americans store most of their net worth in the equity of their homes.  This is why with the housing bubble it must have felt for many homeowners that they found a modern day El Dorado.  Instead of enjoying the piece of mind brought on by equity most were convinced by marketing campaigns to tap out their “trapped” equity and spend like there was no tomorrow.  Housing seemed to be the gift that kept on giving.  But this was only possible through massive leverage and Wall Street creating a casino for mortgage backed securities and other products like CDOs that simply operated as paper games for the wealthy.  Now that this game has collapsed Wall Street has taken their losses and pushed them onto the taxpayer while allowing the American public to shoulder the burden of their decades of horrible and irresponsible speculation.  As the above chart shows with the Case Shiller Index home prices are moving back down on a nationwide level.  One of the creators of this chart Dr. Robert Shiller has hinted that home prices may fall another 15 to 25 percent:

“(NY Times) Robert J. Shiller, the Yale economist who is the author of “Irrational Exuberance” and who helped develop the Standard & Poor’s/Case-Shiller Home Price Index, put himself in this last group. Mr. Shiller said in a conference call on Tuesday that he saw “a substantial risk” of the market falling another 15, 20 or even 25 percent.

The 20-city Case-Shiller composite is already off 31.2 percent from its peak, according to data released Tuesday. Average home prices in Atlanta, Cleveland, Las Vegas and Detroit are below the levels of 11 years ago. A drop the size that Mr. Shiller says he thinks could happen would put Chicago, Dallas, Charlotte and Minneapolis there, too. It would create a lost decade for housing in much of the country even before the effects of inflation.”

This seems completely plausible.  The real economy is still in shambles and most of the income gains are aggregated at the top.  These people are not buying up the properties where most Americans live.  Most Americans pay their mortgage from an ever shrinking paycheck.  So how in the world can home prices go up without the income to back it up?  The Federal Reserve has made rates fall below market only to seduce more people to buy homes they cannot afford with government backed loans.  The end goal is to create enough inflation that the junk loans on bank balance sheets including commercial real estate debt will somehow disappear in the dark of night.  That is the plan but so far what we are seeing is an inflating away of the American middle class.

For these reasons it looks like Wall Street is inflated with the S&P 500 rallying 100 percent from the March 2009 lows:

Source:  Dshort.com

How can it be that the stock market is rallying so strongly when unemployment is still extremely high?  How can it be so high when household income has gone stagnant for over a decade?  What gives when the biggest asset of Americans, a home, is actually going down in price?  Why then is the market rallying so strongly?  Part of it has to do with the bailouts and lack of financial reform.  Banks are merely chasing profits abroad instead of investing and lending to average Americans.  When you can borrow from the Fed near zero it isn’t that difficult to turn a profit.  The Fed has told the biggest lie and that was that the bailouts were geared to helping average Americans when in fact they were geared to helping the most elite in our country by shoring up their stock portfolios and recapitalizing the banks that led this nation into the Great Recession.

What then of reform?  The banking system needs a complete overhaul.  Investment banking and commercial banking need to be split right down the middle.  There should be a zero guarantee on any investment bank activity and absolutely no access to the Federal Reserve.  You want to gamble you do it with your own capital.  It is simply amazing that we haven’t had this accomplished even after having our own rendition of the Great Depression.  Instead, to solve the problem of too big to fail the too big to fail got even bigger.  To solve our debt problems we went into deeper debt.  So not only are the banks central to the crisis not brought to justice but they are rewarded to become even bigger with taxpayer backing.  It is amazing that people aren’t on the streets because of this.  This isn’t a chapter from Alice in Wonderland or 1984 but the serious financial reality of today.  The stock market rally is based on fumes just like we are to believe that the $5.4 trillion in deposits at FDIC insured banks is somehow “backed” by a deposit insurance fund with no money.  It is entirely based on faith.  Since moral hazard is now built into the system you can rest assured another crisis is only around the corner.  Why are we to expect anything different?  The amount of toxic loans still out there is enough to sink the entire banking system.  Instead, we are to pretend that all is well because the banks now have access to the hard work and system we know as the American economy.

My Budget360

The lies will continue until morale improves…..

While indicators of spending and production have been encouraging on balance, the job market has improved only slowly. Following the loss of about 8-3/4 million jobs from early 2008 through 2009, private-sector employment expanded by only a little more than 1 million during 2010, a gain barely sufficient to accommodate the inflow of recent graduates and other entrants to the labor force.

Really?

What improvement?  The employment rate is at new lows as of the January job report.

Likewise, the housing sector remains exceptionally weak. The overhang of vacant and foreclosed houses is still weighing heavily on prices of new and existing homes, and sales and construction of new single-family homes remain depressed. Although mortgage rates are low and house prices have reached more affordable levels, many potential homebuyers are still finding mortgages difficult to obtain and remain concerned about possible further declines in home values.

The housing market refuses to clear and stabilize because the banks, which you supervise, have not been forced to eat the bad loans on their books.  As a consequence the market-clearing prices have not been achieved, inventory is being intentionally manipulated and the market distorted.

This is your responsibility Beernapke.

FOMC participants see inflation remaining low; most project that overall inflation will be about 1-1/4 to 1-3/4 percent this year and in the range of 1 to 2 percent next year and in 2013

Absolutely – there’s no inflation found here:

Or here:

That’s a one-year chart.  Oh yeah, it’s lock-limit up again today.

There’s plenty more of course.  But none of this is “inflation.”  Well, not yet.  What it will be is either inflation or margin collapse.  I’m betting on the latter.

Although overall inflation is low, since summer we have seen significant increases in some highly visible prices, including those of gasoline and other commodities. Notably, in the past few weeks, concerns about unrest in the Middle East and North Africa and the possible effects on global oil supplies have led oil and gasoline prices to rise further.

A doubling in the cost of food in Egypt over the last two years didn’t have anything to do with the unrest, right?

That said, sustained rises in the prices of oil or other commodities would represent a threat both to economic growth and to overall price stability, particularly if they were to cause inflation expectations to become less well anchored. We will continue to monitor these developments closely and are prepared to respond as necessary to best support the ongoing recovery in a context of price stability.

How about if they cause riots and destruction of governments via angry mobs that loot and burn everything in sight  Would that be a problem for “economic growth”?

My colleagues and I continue to regularly review the asset purchase program in light of incoming information, and we will adjust it as needed to promote the achievement of our mandate from the Congress of maximum employment and stable prices. We also continue to plan for the eventual exit from unusually accommodative monetary policies and the normalization of the Federal Reserve’s balance sheet. We have all the tools we need to achieve a smooth and effective exit at the appropriate time.

Liar.

Cessation of QE2 will cause the government to have to actually sell debt into the market, which will cause interest rates to move up, which in turn means that the inability of the government to get its deficit spending under control will become fully-exposed.

And none of these clowns in the Senate has the balls to ask that question.  Oh sure, they’re dancing around it, but they’re not asking the question directly.

PS: Ron Paul won’t tomorrow either.  Bet on that.

PPS: Bernanke’s voice is quavering when being asked about the debt limit.  He knows we’re on the edge of the cliff.

The Market-Ticker